According to a new analysis of the recent report on house prices from Nationwide, estate agency Savills has shown house prices were in much greater decline if taking into account inflation. The report reveals housing wealth in many regions of the UK are no better than they were prior to the 2008 financial crisis. The decline of 2.8% in nominal terms since the record high in March 2022 is in contrast with the 13.4% decline when considering real terms.

Lucian Cook, residential research director at Savills, remarked on the data analysis, saying, “Because of high inflation, the adjustment in the average price of a UK home has been much more significant in real terms.”

For a homeowner that purchased their home after December 2015, despite the growth in house prices, the real term analysis reveals a loss in value. In many areas house prices have fallen in double digits since the peak level in 2007 when inflation is considered.

Inflation has chipped away the underlying value of UK properties and unfortunately, inflation is still a problem and likely will be into 2024.

The last inflation level was reported at 6.7%, which is more than three times the target level set by the Bank of England of 2.0%.

Inflation is why the Bank’s Monetary Policy Committee (MPC) has increased the standard base interest rate. In making borrowing more expensive it is meant to slow spending. Less demand from consumers will allow supply to grow and prices to normalize rather than climb. 

In fighting the latest stubborn bout of inflation, the MPC first hiked the base rate in December 2021. The rate was then almost zero at 0.1% having historically lowered due to the impact on the economy by the global pandemic. The rate was raised for the first of fourteen consecutive meetings to 5.25% and voted to remain steady last month. 

There is not a MPC meeting in October, but the next one is at the start of November. At this point, there is not a forecast for another rate hike, and the 5.25% could be the peak rate. However, if inflation does not continue to take a downward slide, the MPC has promised not to hesitate to make another increase in the base rate.

The higher interest rates are impacting housing market demand, but lenders have become more competitive, and offerings have lowered two months in a row despite the MPC holding steady on the standard base rate. According to a report by Moneyfacts, the average five-year fixed rate is 5.93% which was only 2.55% in October 2021, making today’s rate for the fixed five year more than double of the offering two years ago, but lower than had been expected had the MPC increased the base rate in September. 

There is a possibility of the housing market staying resilient with the holiday season on the horizon. It is a time when many will consider purchasing a property. With the recent lowering of interest rate offers, with buyers becoming more realistic of the state of the economy and choosing to lower asking prices, and the ever-hopeful dream of becoming of a homeowner, the market could gain strength.

Despite the real impact on the housing market with inflation considered, homeowners that purchased their homes in the last few years are more concerned with how their property values will survive in the coming months and in 2024 so that they can remain out of negative equity. Doing so will allow them to remortgage and a remortgage is perhaps the very best tool for helping them avoid paying more than necessary as they come to the end of their mortgage terms.

There are weeks until the next MPC meeting and how inflation is still impacting all sectors of the economy will be reported. It could be of all MPC decisions made this year, the one in November could make the greatest difference for how the year ends and 2024 begins.